Kensington Swan's view on aspects of the construction industry

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Winners and losers in the rising cost of construction

While the construction market is booming, so are the costs of construction, and the cracks are starting to show.

Last week, yet another Auckland building company, Point to Point Holdings was put into liquidation, leaving 132 homeowners and subcontractors $1.7 million out of pocket. The company has blamed rising costs of building for its downfall.

According to Derek Ah Sam, Point to Point’s liquidator, this is an explanation he hears frequently, stating to Radio New Zealand ‘When we interview directors they blame the staff or rising costs, one factor is the business expands and they lose control and it causes a lot of rework. As soon as you get rework on a project, margins are eroded’.

However, there are people benefitting from the construction boom. A shortage of construction workers means that wages are being driven up – and tradespeople can increase their prices, knowing that there is a shortage of other available people who could perform the same job. This phenomenon has been feeding through into higher building costs according Gareth Kiernan, an Infometrics economist.

It doesn’t look like this situation will go away any time soon, with the Building and Construction Industry Training Organisation having less than half the number of trainees it estimates are required to meet need and growth in construction industry over the next five years.